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O Level Principles of Accounts Ratios Analysis Quiz

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O-Level Principles of Accounts Quiz - Ratios Analysis

Name: __________________________
Class: __________________________
Date: __________________________
Score: _______ / 40

Duration: 45 Minutes
Total Marks: 40

Instructions:

Answer all questions.
Show all workings clearly. Marks are awarded for method.
Round ratios to two decimal places unless otherwise stated.
Percentages should be rounded to one decimal place.

Section A: Knowledge and Basic Calculations (10 Marks)

1. State the formula for calculating the Current Ratio.
[1]

2. State the formula for calculating the Quick Ratio (Acid Test).
[1]

3. A business has a Current Ratio of 2.5:1 and a Quick Ratio of 0.8:1. What does this significant difference suggest about the composition of its current assets?
[1]

4. Calculate the Gross Profit Margin if Revenue is $500,000 and Cost of Sales is$ 350,000.
[1]

5. Calculate the Net Profit Margin if Revenue is $500,000 and Net Profit for the year is$ 45,000.
[1]

6. Why is the Net Profit Margin always lower than the Gross Profit Margin?
[1]

7. Define Inventory Turnover (in times).
[1]

8. If Inventory Turnover is 5 times, calculate the Inventory Holding Period (in days). Assume 365 days in a year.
[1]

9. A high Inventory Holding Period may indicate two potential problems for a business. State one of them.
[1]

10. State the formula for Return on Capital Employed (ROCE).
[1]

Section B: Application and Calculation (18 Marks)

Use the following extracts from the Financial Statements of TechGear Pte Ltd for the years ended 31 December 2024 and 2025 to answer Questions 11–15.

	2024 ($)	2025 ($)
Statement of Profit or Loss Extracts
Revenue	800,000	950,000
Gross Profit	240,000	285,000
Net Profit for the year	64,000	76,000

Statement of Financial Position Extracts
Non-Current Assets
Property, Plant and Equipment	300,000	320,000
Current Assets
Inventory	40,000	65,000
Trade Receivables	50,000	55,000
Cash and Cash Equivalents	10,000	5,000
Current Liabilities
Trade Payables	30,000	40,000
Bank Overdraft	10,000	15,000
Accruals	5,000	5,000

Capital Employed	355,000	385,000

11. Calculate the Gross Profit Margin for 2024 and 2025.
[2]

12. Calculate the Net Profit Margin for 2024 and 2025.
[2]

13. Calculate the Current Ratio for 2024 and 2025.
[2]

14. Calculate the Quick Ratio for 2024 and 2025.
[2]

15. Calculate the Inventory Turnover (in times) for 2025. Use the closing inventory for 2025 as the average inventory if opening inventory is not explicitly provided for the ratio denominator context, or use average if possible. Note: For this question, use Closing Inventory 2025 ($65,000) as the denominator.
[2]

16. Global Foods Ltd had Trade Receivables of $120,000 at the end of the year. Credit Sales for the year were$ 900,000. Calculate the Trade Receivables Collection Period (in days).
[2]

17. BuildIt Construction has Current Assets of $200,000 and Current Liabilities of$ 100,000. The business decides to use $20,000 cash to pay off some Trade Payables.
Calculate the new Current Ratio after this transaction.
[2]

18. Explain why a business might have a Quick Ratio significantly lower than its Current Ratio.
[2]

Section C: Analysis and Evaluation (12 Marks)

19. StyleHub, a clothing retailer, has seen its Inventory Holding Period increase from 45 days to 75 days over the last two years.
(a) Suggest two possible reasons for this increase.
[2]
(b) Explain one negative consequence of this increase for the business.
[2]

20. Compare the liquidity position of TechGear Pte Ltd in 2024 versus 2025 based on your calculations in Questions 13 and 14.
(a) State whether liquidity has improved or deteriorated.
[1]
(b) Justify your answer with reference to the ratios calculated.
[2]
(c) Recommend one action management could take to improve the Quick Ratio in 2026.
[1]

Answers

O-Level Principles of Accounts Quiz - Ratios Analysis (Answer Key)

1. Current Assets / Current Liabilities
[1]

2. (Current Assets – Inventory) / Current Liabilities
[1]

3. It suggests that a large proportion of current assets is held in inventory (stock), which is not immediately liquid.
[1]

4. ( $150,000 /$ 500,000) × 100 = 30%
[1]

5. ( $45,000 /$ 500,000) × 100 = 9%
[1]

6. Because Net Profit deducts all expenses (overheads, finance costs, tax), whereas Gross Profit only deducts Cost of Sales.
[1]

7. Cost of Sales / Average Inventory
[1]

8. 365 / 5 = 73 days
[1]

9. Any one of:

Obsolescence of stock
High storage/holding costs
Cash flow tied up in stock
Risk of damage/theft
[1]

10. (Net Profit before Interest and Tax / Capital Employed) × 100
Note: Accept Net Profit for the year / Capital Employed if interest/tax not specified.
[1]

11. Gross Profit Margin:
2024: ( $240,000 /$ 800,000) × 100 = 30.0%
2025: ( $285,000 /$ 950,000) × 100 = 30.0%
[1 for each year]

12. Net Profit Margin:
2024: ( $64,000 /$ 800,000) × 100 = 8.0%
2025: ( $76,000 /$ 950,000) × 100 = 8.0%
[1 for each year]

13. Current Ratio:
Current Assets 2024: 40k + 50k + 10k = 100,000
Current Liabilities 2024: 30k + 10k + 5k = 45,000
2024: 100,000 / 45,000 = 2.22 : 1

Current Assets 2025: 65k + 55k + 5k = 125,000
Current Liabilities 2025: 40k + 15k + 5k = 60,000
2025: 125,000 / 60,000 = 2.08 : 1
[1 for each year]

14. Quick Ratio:
Quick Assets 2024: 100,000 - 40,000 = 60,000
2024: 60,000 / 45,000 = 1.33 : 1

Quick Assets 2025: 125,000 - 65,000 = 60,000
2025: 60,000 / 60,000 = 1.00 : 1
[1 for each year]

15. Inventory Turnover 2025:
Cost of Sales = Revenue - Gross Profit = 950,000 - 285,000 = 665,000
Inventory Turnover = 665,000 / 65,000 = 10.23 times
[1 for COS, 1 for final answer]

16. Receivables Collection Period:
(120,000 / 900,000) × 365 = 48.67 days (or 49 days)
[1 for formula/substitution, 1 for answer]

17. New Current Ratio:
New Current Assets = 200,000 - 20,000 = 180,000
New Current Liabilities = 100,000 - 20,000 = 80,000
New Ratio = 180,000 / 80,000 = 2.25 : 1
[1 for new balances, 1 for ratio]

18. Because the business holds a significant amount of inventory (stock). Inventory is included in Current Assets but excluded from Quick Assets. A large gap indicates low liquidity relative to total current assets due to stock levels.
[1 for identifying inventory, 1 for explanation]

19.
(a) Reasons (Any 2):

Overstocking / Buying too much stock
Decline in sales demand / Poor marketing
Obsolete/out-of-fashion goods
Inefficient inventory management
[1 each, max 2]

(b) Consequence (Any 1):

Cash flow problems (cash tied up in stock)
Increased storage/insurance costs
Risk of write-off due to obsolescence/spoilage
[2 for clear explanation]

20.
(a) Deteriorated
[1]

(b) Justification:

Current Ratio fell from 2.22 to 2.08.
Quick Ratio fell significantly from 1.33 to 1.00.
The business has less liquid assets relative to its short-term debts in 2025 compared to 2024.
[1 for trend, 1 for data reference]

Reduce inventory levels (sell off old stock).
Collect receivables faster (offer early settlement discounts).
Negotiate longer credit terms with suppliers (increases current liabilities denominator? No, this improves cash but increases CL. Better: Inject capital or long-term loan to pay off overdraft).
Best Answer: Reduce inventory or accelerate receivables collection to increase quick assets.
[1]